2025 (3) TMI 31 - AT - Income Tax

Addition u/s 56(2)(viib) - shares have been issued at premium by the subsidiary company to its 100% holding company - HELD THAT The Hon ble High Court in FIS Payment Solutions Services India Pvt.Ltd. 2024 (10) TMI 182 - DELHI HIGH COURT endorsed the construction of s.56(2)(viib) rendered in the case of BLP Vayu (P.) Ltd. 2023 (6) TMI 209 - ITAT DELHI Kissandhan Agri Financial Services (P.) Ltd. 2023 (3) TMI 769 - ITAT DELHI . As per judgements quoted it was observed that deeming fiction of s.56(2)(viib) could not apply in the case of such transactions between holding company and wholly owned subsidiary in the absence of any purported benefit occurring to any outsider. Significantly the Hon ble High Court noted that the Revenue has acquiesced with the judgement of Co-ordinate Benches before the Hon ble High Court. No error in the order of CIT(A) which is resulted in reversal of the addition under s.56(2)(viib) of the Act. Appeal of the Revenue is dismissed.

Summary

The appeal before the Appellate Tribunal involved the Revenue challenging an order by the Commissioner of Income Tax (A)-5, New Delhi, regarding the addition of Rs. 16,46,40,000 made by the Assessing Officer under section 56(2)(viib) of the Income Tax Act, 1961 for the assessment year 2014-15. The key issues presented and considered in this case were whether the CIT(A) was justified in deleting the aforementioned addition and whether the CIT(A) was correct in accepting the calculation by the assessee company over the findings of the Assessing Officer regarding the share premium value. The Revenue contended that the market value of shares was higher than the premium charged by the assessee company, leading to the invocation of section 56(2)(viib) to tax the excess share premium. The assessee company, a wholly owned subsidiary of M/s. Puran Associates Pvt. Ltd., argued that the deeming fiction of section 56(2)(viib) should not apply in the case of transactions between a holding company and its wholly owned subsidiary.In its analysis, the Tribunal referred to various judgments, including FIS Payment Solutions & Services India Pvt. Ltd. v UOI, DCIT v Kissandhan Agri Financial Services (P.) Ltd., M/s. KBC India Pvt.Ltd. vs ITO, ACIT vs Dhruv Milkose Pvt.Ltd., ITO v K.V.Global Pvt.Ltd., Rugby Regency (P.) Ltd. v ACIT, and ITO vs Solitaire BTN Solar (P.) Ltd. These judgments highlighted that the deeming fiction of section 56(2)(viib) does not apply in transactions between a holding company and its wholly owned subsidiary where no benefit accrues to any outsider.The Tribunal, after considering the arguments and precedents, found no error in the CIT(A)'s order that resulted in the reversal of the addition under section 56(2)(viib). The Tribunal concluded that the judgments by the Co-ordinate Benches and endorsed by the High Court supported the position that the deeming fiction of section 56(2)(viib) does not apply in such transactions. Therefore, the appeal of the Revenue was dismissed, and the order was pronounced on 27th February 2025.In summary, the Tribunal upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer under section 56(2)(viib) based on the legal principle that the deeming fiction of the provision does not apply in transactions between a holding company and its wholly owned subsidiary without any benefit to outsiders.